Park v. Cytodyne Technologies

Filed 1/17/07  Park v. Cytodyne Technologies CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b).  This opinion has not been certified for publication or ordered published for purposes of rule 977.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

            APPEAL from a judgment of the Superior Court of San Diego County, Ronald Styn, Judge.  Reversed and remanded with directions.

INTRODUCTION

            Pending resolution of this appeal, the parties settled the action and filed a Joint Application For Order Transferring Jurisdiction Over Matter to Trial Court to Vacate Judgment.  By letter to this Court dated December 20, 2006, the parties clarified their requested disposition of the appeal: " The intent of the parties is to return the matter to a pre-judgment status and then dismiss the underlying action with prejudice.  Furthermore, as part of the settlement, the parties have agreed to bear their own costs on appeal."   By letter to this Court dated January 4, 2007, the parties informed the Court that " all conditions precedent to vacating the judgment have been satisfied."

            Code of Civil Procedure section 128, subdivision (a)(8)^[1] provides, in part: " An appellate court shall not reverse or vacate a duly entered judgment upon an agreement or stipulation of the parties unless the court finds both of the following:

            " (A) There is no reasonable possibility that the interests of nonparties or the public will be adversely affected by the reversal.

            " B) The reasons of the parties for requesting reversal outweigh the erosion of public trust that may result from the nullification of a judgment and the risk that the availability of stipulated reversal will reduce the incentive for pretrial settlement."

            This Court finds the conditions for a stipulated reversal have been satisfied and we therefore reverse the judgment and remand the matter to the trial court with directions to dismiss the action with prejudice.

BACKGROUND

            This action is an unfair competition (Bus. & Prof. Code, §  17200) and false advertising (Bus. & Prof. Code, §  17500) class action regarding the dietary supplement Xenadrine RFA-1.  The class consists of persons in California who purchased Xenadrine RFA-1 for personal, family, or household purposes between April 21, 1997, and June 4, 2001.  On October 3, 2003, defendant Nutraquest, Inc. (formerly known as Cytodyne Technologies, Inc.) (Nutraquest) filed a notice of appeal from the October 15 judgment enjoining it and others from disseminating certain false or misleading advertising claims and awarding the plaintiff class more than $18 million.^[2]  On October 16, Nutraquest filed a chapter 11 bankruptcy petition in New Jersey.  On November 7, this court stayed the appeal.  The bankruptcy court modified the automatic stay to allow the appeal to proceed, and on April 23, 2004, this court vacated the stay.  By June 27, 2005, the appeal was fully briefed, including an amicus curiae brief by the Attorney General.

            On July 1, 2005, Nutraquest requested oral argument.  On October 7, the parties notified this court they recently began settlement discussions.  On June 9, 2006, they filed a letter with this court stating that on May 22, they executed an agreement memorializing a proposed settlement agreement and that on June 2, the New Jersey federal district court^[3] gave its preliminary approval to that agreement.

            The settlement agreement covers this appeal and certain bankruptcy proceedings.  It provides Nutraquest will pay a maximum of $8 million toward the claims of the class members, who will receive up to $11.88 each; $20,000 to Park; the costs of notice and administration of the settlement; and $4.5 million in attorney fees and costs.   The settlement agreement does not include injunctive relief.  The agreement also states Nutraquest may apply to the superior court and this court for vacation of the judgment, " conditioned and effective upon consummation of this [s]ettlement and the [reorganization p]lan becoming effective," and Park " agrees to join in [the] application .  .  . so long as: (i) the application is in substantially the same form as the form of application provided to Park['s c]ounsel prior to execution of this [a]greement; and (ii) the settlement of the NAPA Action, the Markowitz Settlement, and/or an FTC [Settlement] afford protections to California consumers and Park Class Members that are equal to or greater than the protections afforded by the injunctive relief provided in the Park Judgment." ^[4]

            On October 11, 2006, the parties filed a " Joint Application for Order Transferring Jurisdiction over Matter to Trial Court to Vacate Judgment."   (§  128, subd. (a)(8).)  The joint application requests the appeal be dismissed and the matter remanded to the superior court for entry of an order vacating the judgment, with the order " conditioned and effective upon consummation of the .  .  . settlement agreement and the .  .  . reorganization plan becoming effective."

            On October 12, 2006, the district court issued a final order and judgment incorporating and approving the parties' May 22 settlement agreement, certifying the class, stating the district court had exclusive and continuing jurisdiction to enforce the final order and judgment, and stating that if the proposed settlement did not become effective or was voided in accordance with the terms of the settlement agreement, the final order and judgment would be vacated.  On November 3, the district court confirmed Nutraquest's third modified reorganization plan.

            The parties have advised this court that all conditions to the stipulated request for reversal have been satisfied.

DISCUSSION

            Section 128, subdivision (a)(8) provides, in part:  " An appellate court shall not reverse or vacate a duly entered judgment upon an agreement or stipulation of the parties unless the court finds both of the following: [¶] (A) There is no reasonable possibility that the interests of nonparties or the public will be adversely affected by the reversal. [¶] (B) The reasons of the parties for requesting reversal outweigh the erosion of public trust that may result from the nullification of a judgment and the risk that the availability of stipulated reversal will reduce the incentive for pretrial settlement."   " The parties must .  .  . submit memoranda of points and authorities and declarations and other documentary evidence persuasively demonstrating that reversal of the judgment in question will not adversely affect nonparties or the public, erode public trust, or reduce the incentive for pretrial settlement  .  .  .  ."  (Hardisty v. Hinton & Alfert (2004) 124 Cal.App.4th 999, 1007, as mod. Jan. 4, 2005.)

            Here, the parties note the Markowitz settlement was supervised by the district court and provides monetary relief for persons who purchased Xenadrine RFA-1 between April 21, 1997, and April 1, 2003, and both the Markowitz settlement and the Napa settlement include injunctive relief.  (Fn. 3, ante.)   Considering those facts, we determine " [t]here is no reasonable possibility that the interests of nonparties or the public will be adversely affected by the reversal."   (§  128, subd. (a)(8)(A).)

            Nutraquest filed its bankruptcy petition after entry of the judgment.  The parties observe the settlement agreement " is a part of the District Court's substantial efforts on behalf of a nationwide bankruptcy that resolves creditor claims from all over the country."   The district court expressly found the settlement agreement was entered into in good faith and treated class members equitably, and the contributions to the settlement by Nutraquest and on its behalf amounted to more than its net worth.  Considering these facts, we conclude " [t]he reasons of the parties for requesting reversal outweigh the erosion of public trust that may result from the nullification of a judgment and the risk that the availability of stipulated reversal will reduce the incentive for pretrial settlement."   (§  128, subd. (a)(8)(B).)  " When lawyers responsibly settle litigation, public trust in the courts is advanced.  Hence, in exercising discretion on a case-by-case basis in evaluating whether the three factors in section 128, subdivision (a)(8) are present, it is relevant that reversible error occurred but it is not a prerequisite to the judicial acceptance of a stipulated reversal in a case such as this  .  .  .  ."   (Union Bank of California v. Braille Institute of America (2001) 92 Cal.App.4th 1324, 1331.)

DISPOSITION

            Based on the stipulation of the parties under section 128, subdivision (a)(8), the judgment is reversed and the case is remanded to the trial court with directions to dismiss the action with prejudice.  The remittitur shall issue immediately.  Each party shall bear its own costs on appeal.

McDONALD, Acting P. J.

WE CONCUR:

                                   O'ROURKE, J.

                                         AARON, J.

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^[1]           All statutory references are to the Code of Civil Procedure unless otherwise specified.

^[2]           The money judgment is composed of the following approximate amounts:  $12.5 million in principal, $5 million in attorney fees, $155,500 in statutory costs, and $445,000 in nonstatutory costs, all to Jason Park as class representative, and $20,000 to Park individually.

^[3]           The district court withdrew its reference to the bankruptcy court.

^[4]           The Markowitz settlement refers to Nutraquest's settlement, in the context of the bankruptcy proceedings, of another class action.  That class consists, in part, of all persons who purchased Xenadrine RFA-1 in the United States between April 21, 1997, and April 1, 2003, except members of the class in the instant case.  The Markowitz settlement provides for a $3 million fund, established by Nutraquest and others, to be used for partial refunds to class members, $10,000 to each of the three class representatives, and costs.  The settlement also sets forth an injunction against representations regarding Xenadrine RFA-1.

            The Napa action refers to a stipulated judgment, including injunctive relief against representations about weight-loss products, in an action brought against Nutraquest in Napa County.  That judgment states the plaintiff, the People of the State of California, " agree .  .  . that it will not object to the joint application to vacate the Park judgment" or " to Nutraquest's motion to approve the Park settlement agreement."

            Finally, according to the parties here, a settlement was negotiated between staff of the Federal Trade Commission, representatives of Nutraquest's officers, and an affiliated entity.